T-Bond trading comment (December 4, 2007)

Well, the reverse hammer does not look to good right now.... Since the close of Friday, we have climbed by almost a buck on heightened risk in the credit markets... The market remains very fragile and will shoot up as soon as an opportunity presents itself... On the other side of the trade, we are hearing more and more people saying that its valuation is maybe getting on the rich side. With the bull run in the commodities and the inflation creeping up in Europe (look at Euro-zone CPI...) it might be logical to see lower prices in the long bond.

Today was a real rollercoaster. Go up, go down, go back-up, fall again and close unchanged with yesterday.... And this was in the face of falling equities. Don't know if this is the start of the reverse trend but we have lots of room to the downside!!! Looking at our non-stationary model, we see that the last time we visited such distortion levels the T-bond had skyrocketed to 123 from the 110 area. After that, the market tanked by almost 20 bucks... We won't do the same thing this time, but maybe a little downtrend wouldn't hurt anybody.... All that said, with the current market we can still go higher...